David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

Learning Outcomes
By the end of this chapter, you should understand:
0 perfect competition
f) why a perfectly competitive firm equates marginal cost and price
0 how profits and losses lead to entry and exit
0 the industry supply curve
0 comparative static analysis of a competitive industry
0 pure monopoly
0 why a monopolist's output equates MC and MR
0 how output compares under monopoly and perfect competition
0 how price discrimination affects a monopolist's output and profits
An industry is the set of all firms making the same product. The output of an industry is the sum of the
outputs of its firms. Yet different industries have very different numbers of firms. Eurostar is the only
supplier of train journeys from London to Paris. In contrast, the UK has 150 000 farms and 20 000 grocers.
Why do some industries have many firms but others only one? Chapter 9 develops a general theory of
market structure, showing how demand and cost conditions together determine the number of firms and
their behaviour.
In a perfectly competitive
market, both buyers and
sellers believe that their own
actions have no effect on the
market price. In contrast, a
monopolist, the only seller or
potential seller in the industry,
sets the price.
First it is useful to establish two benchmark cases, extremes between which
all other types of market structure must lie. These limiting cases are perfect
competition and monopoly.
We focus on how the number of sellers affects the behaviour of sellers. Buyers are
in the background. We simply assume there are many buyers whose individual
downward-sloping demand curves can be aggregated into the market demand
curve. Thus, we assume that the demand side of the market is competitive but
contrast the different cases on the supply side.
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